High marginal tax rates on the top 1 percent? lessons from a life-cycle model with idiosyncratic income risk by Fabian Kindermann and Dirk Krueger
By: Kindermann, Fabian
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Contributor(s): Krueger, Dirk.
Material type: 
ArticleSubject(s): RENTAS ALTAS | IMPUESTOS | TIPOS DE GRAVAMEN | INCREMENTO | REDISTRIBUCION | ELASTICIDAD IMPOSITIVA | RIESGO FISCAL | MODELOS ECONOMETRICOS
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American Economic Journal : Macroeconomics v. 14, n. 2, April 2022, p. 319-366Summary: This paper argues that high marginal labor income tax rates on top earners are an effective tool for social insurance even when households have high labor supply elasticity, households make dynamic savings decisions, and policies have general equilibrium effects. We construct a large-scale overlapping generations model with uninsurable labor productivity risk, show that it has a realistic wealth distribution, and numerically characterize the optimal top marginal rate. We find that marginal tax rates for top 1 percent earners of 79 percent are optimal as long as the model earnings and wealth distributions display a degree of concentration as observed in US data.
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| OP 2137/2021/4-1 The young, the old, and the Government | OP 2137/2022/1 American Economic Journal : Macroeconomics | OP 2137/2022/2 American Economic Journal : Macroeconomics | OP 2137/2022/2-1 High marginal tax rates on the top 1 percent? | OP 2137/2022/3 American Economic Journal : Macroeconomics | OP 2137/2022/3-1 Optimal taxation with endogenous default under incomplete markets | OP 2137/2022/3-2 Dynamic capital tax competition under the source principle |
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This paper argues that high marginal labor income tax rates on top earners are an effective tool for social insurance even when households have high labor supply elasticity, households make dynamic savings decisions, and policies have general equilibrium effects. We construct a large-scale overlapping generations model with uninsurable labor productivity risk, show that it has a realistic wealth distribution, and numerically characterize the optimal top marginal rate. We find that marginal tax rates for top 1 percent earners of 79 percent are optimal as long as the model earnings and wealth distributions display a degree of concentration as observed in US data.
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